2.10 How to Choose a Forex Broker

 

Now we know all what has to be known about the various types of brokers. However, in each types not all brokers are same. Some may be good and some may not be so good. One broker may be good for John but may now have what all Harry needs. How do you decide which one is good for you? Difficult, right? Not so, if you know what all you need to check to make your decision.

 

Just like any selection process, the choosing a Forex broker depends on the following:

 

  1. Critical requirements
  2. Requirements for convenience

 

Overall the selection of broker boils down to the big three – Safety, Profitability and Convenience. For each of these, the first step is listing down what needs to be there and what will add to our convenience. Please note that there may not be a “Best for Everyone” broker. Many times geographical factors come into the picture because of local regulations and also possibly different service levels of that broker in the different geographies and many times our individual needs may be different.

 

First Step in Selection Process

 

Critical Requirements:

 

  • Is my money secure? Your deposits, and your profits, should be in the right hands. The broker should be registered with regulatory authorities of your country/region and details of his registration should be public. This means that his credentials have been verified and he meets the minimum standards required for registration by the regulatory authorities. Also check how long the broker has been into the business and how good is the market reputation.

 

  • Are the funds transfers, either way, smooth and prompt?

 

  • What if I have a problem? Customer service? The last port-of-call. Check if the support staff is knowledgeable, courteous, speak your language and are easily accessible through various means such as telephone, online chat, e-mail etc. Check out if they have local presence in the country or region of your residence. Even though in the online world this is not critical but local infrastructure and presence never hurts. 

 

  • What am I going to pay for my trading? Check the trade-off you will incur for low charges but better security. The lowest charges may not necessarily be the best option if you are not sure you’ll get your money back when you want it! Again, if you are going to be a high volume trader, low spreads or commissions are of crucial importance. So do the math, and the balancing act.

 

  • Do I like the trading platform? Assume the platform is your gateway to successful trading. So check that it is well-designed, aesthetically pleasing, friendly to use and dependable and very important to see if the offered trading platform has the technical indicators you will like to use. A platform which offers more time-frame charts is always the better. Charts should be available for minimum 5 minutes to at least weekly charts if not monthly charts.

 

  • How well do trades get executed? Fast and honest filling of your orders without slippage and re-quotes is a must if you have to survive FX trading.

 

Choosing a broker really starts with what kind of trading you plan to do. Here’s a questionnaire apart from the must have features as mentioned above – this will help you clarify your priorities and make the process of selecting a broker that much easier:

 

Question

Options/explanations

 

How will you fund (put in money) your account?

 

 

Credit card, Wire Transfer, Paypal or other options.

 

How will you withdraw funds from your account?

 

 

Back to your credit card, wire transfer.

 

What are the charges involved in making deposits and withdrawals?

 

 

Every broker may have different policies.

 

What would be your account size, i.e. the amount invested for trading and also each trade size.

There are brokers who may only accept standard lots and there are others which are good for mini or micro lots trading. Then there are brokers who allow a position of any amount, right down to one dollar.

 

What is your requirement for leverage?

Though we always recommend an optimum leverage between 10 to 30 but you need to check your broker for offered leverages.

 

What are your chosen currency pairs for trading?

All brokers offer all major currency pairs and many minor but in case you wish to trade with some less traded pairs, you again should check the availability of the same.

 

Charting functions?

For example it is possible that you use Ichimoku cloud frequently but broker’s platform does not offer that indicator even if everything else may be meeting your requirement.

 

Do you need any particular platform, e.g. MT4?

Most of the times it is features and reliability of the trading platform but at other times a trader may have individual preferences.

 

Do you need specialized order processing such as OCO, if-then, trailing stops etc.?

 

More is always better but every trader may have individual preferences and needs. Your needs for Forex order types also becomes a selection criteria.

 

Do you need ‘single-click’ order execution?

Efficiency of execution of a trade is very important, especially in volatile market and you would like to check your broker’s platform for order execution function.

 

Would you prefer to pay charges in the form of spreads or commission?

 

Transaction cost is very important factor for planning a trade as well as better profitability and hence this becomes a selection criterion.

 

If spreads – variable or fixed?

Variable spreads cover the broker’s risk when market is volatile or there is an uncertainty about the volatility. However, your individual choice may be to go for fixed spreads.

 

Spreads – how much?

 

 

Lower is always better, right?

 

Would you need to scalp?

 

Again, we do not really recommend scalping but occasionally you may wish to go for it.

 

Do you need mobile trading facility or alerts facility?

You may like to trade while on the move or wish to have alerts when there is an important market move or economic event.

 

At the end of all this you should narrow down your list to 2-3 brokers who would have to undergo a final check to win the beauty pageant. Visit brokers’ websites and read reviews on the internet. Talk to friends who are already trading and take their opinions. Visit Forex forums and read posts about the brokers’ performance and complaints against them. 

 

You may also use broker search and selection tools to help you in your selection process.

 

Second Step in the Selection Process

 

Open a demo trading account and use it for some time. This way you will be able to check out the offered functionality and efficiency of the execution of the trades.

 

Third and Final Step in Choosing Right Forex Broker

 

Open a real trading account with the chosen broker and trade with very small positions. Try to contact support for any issues to check out the support levels and also try to withdraw small amounts to check into any issues in withdrawing the money. 

 

 

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